Guidance for Cost Estimation and Management for Highway Projects During Planning, Programming, and Preconstruction (2007)

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A P P E N D I X C Definitions

C-1 Acquisition: The act or process of acquiring fee title or some interest therein other than fee title of real prioperty (real estate). Allowance: Additional resources included in an estimate to cover the cost of known but unde- fined requirements for an activity or work item. An allowance is a normal cost. Appraisal: A written statement independently and impartially prepared by a qualified appraiser setting forth an opinion of defined value of an adequately described property as of a specific date, supported by the presentation and analysis of relevant market information. Competitive Bidding: The process whereby construction projects are required to be advertised and awarded to the lowest responsible and responsive bidder through open bidding, unless use of an eligible force account is more cost-effective. Conceptual Estimate (Initial Estimate): A project cost estimate prepared prior to the NEPA decision document. Usually, quantities have not been determined at this time. The estimates are prepared for the range of alternatives evaluated under NEPA. In some cases, the relative dollar amount is expressed as a range used for decision making to proceed with project devel- opment. Condemnation: The legal process of acquiring private property for public use or purpose through the acquiring agency’s power of eminent domain. Condemnation is usually not used until all attempts to reach a mutually satisfactory agreement through negotiations have failed. An acquiring agency then goes to court to acquire the needed property. Confidence Level: The probability that a range will contain the value under consideration. For example: “there is a 90% probability that the ultimate project cost will be less than $(number).” Confidence Range: The difference between the upper and lower values of a set of numbers or results within specific confidence levels. Construction Administration Cost: The normal cost of administration, management, reporting, design services in construction, and community outreach required in the construction phase of a project. Construction Allowance: An amount of additional resources included in an estimate to cover the cost of known but undefined requirements for a construction activity or work item. A construction allowance is a normal cost. Construction Contingency: An additional markup applied to cover the cost of undefined and as- yet unknown construction requirements that are expected to be zero at completion of con- struction. Construction contingency is a risk cost. Construction Phase: The project development phase that includes advertising the project, award- ing the contract, and performing the actual construction. APPENDIX C Definitions

Contingency: A markup applied to account for substantial uncertainties in quantities and unit costs and the possibility of currently unforeseen risk events related to quantities, work ele- ments, or other project requirements. Contingency is a risk cost. Cost Estimate Validation Process (CEVP) Schedule: The schedule assessed by the CEVP team, including consideration of all normal costs, allowances, contingency, risk, and opportunity events. Cost Team: The CEVP team members plus project team members who reviewed all elements of normal cost (including allowances) for the particular project under consideration. Cost Validation: A detailed examination of normal costs (including allowances) for the partic- ular project under consideration to assess validity, reasonableness, consistency, and accuracy of these costs. Damages: A loss in value of the remaining property caused by the acquisition, planned use, or construction. Normally, the value of the damage is based on the before-and-after appraisal or cost to cure. An owner is entitled to payment of damages and receives this payment as a part of just compensation. Design Allowance: Additional resources included in an estimate to cover the cost of known but undefined requirements for a design element. A design allowance is a normal cost. Design Contingency: A markup applied to cover the cost of undefined and as-yet unknown design requirements. The design contingency is expected to be zero at completion of design. Design contingency is a risk cost. Eminent Domain: The right of a government to take private property for public use. In the United States, just compensation must be paid for private property acquired for federally funded programs or projects. Environmental Clearance: The process whereby a project must conform to the National Envi- ronmental Policy Act (NEPA), the National Historic Preservation Act (Section 106), and Sec- tion 4(f) of the U.S. DOT Act, and other relevant federal and state environmental laws. Estimate: The most probable cost for a project, consisting of normal costs, contingencies, and the probable cost of risk events. Fair Market Value: The price that a willing buyer will pay a willing seller for a piece of real estate. Federal Share: The portion of the project cost funded by the federal government. These federal funds are normally matched with state and/or local government funds to make up the total cost of the project. The federal portion, or share, is 80% for most projects; however, in states with large amounts of federal lands, a higher federal share is authorized. See Matching Funds. Final Estimate: The estimate developed when design is approximately complete and all quanti- ties are known. Highest and Best Use: The legal use (or development or redevelopment) of a property that makes the property most valuable to a buyer or the market. Just Compensation: The price an agency must pay to acquire real property. The price offered by the agency is considered to be fair and equitable to both the property owner and the public. The agency’s offer to the owner is just compensation and may not be less than the amount established in the approved appraisal report as the fair market value for the property. If it becomes necessary for the acquiring agency to use the condemnation process, the amount paid through the court will be just compensation for the acquisition of the property. Matching Funds (Local Funding Share): The percentage of nonfederal funds required for almost all TEA-21 programs on a project-by-project basis to match a federal contribution. The standard ratio is a 20% match from state and local sources, with a federal share of 80%. See Federal Share. Monte Carlo Simulation: A technique using multiple simulations incorporating the variability of individual elements to produce a range of potential results. C-2

National Environmental Policy Act (NEPA): The federal law that requires every federal agency, prior to approving a major federal action that could significantly affect the quality of the human environment, to prepare a detailed report evaluating both environmental impacts and alternatives to the proposed action. The environmental clearance required of federal-aid proj- ects may take a variety of forms: environmental impact statement (EIS), environmental assessment (EA), finding of no significant impact (FONSI), and categorical exclusion (CE). Negotiation: The process used by acquiring agencies to reach amicable agreements with prop- erty owners for the acquisition of needed property. An offer is made for the purchase of prop- erty in person or by mail, and the offer is discussed with the property owner. Nomination: The process by which a public or private entity submits an application for a can- didate project to the state DOT for consideration. In most states, the nominating entity must be a public agency with tax-bearing authority. Normal Cost: The most probable cost for a unit or element of the project. The normal cost rep- resents the cost that can most reasonably be expected if no significant problems occur. The normal cost typically has small uncertainty or variance. Obligation: The second step in the funding process; the formal commitment by the FHWA of a specified amount of funding for a particular project, usually made when project or project phase is ready to begin billable work. Overmatch: The share of state or local matching funds (or in-kind value) brought to a project that is over and above the required state/local share. Parcel: Any plot of land. For the purposes of this report, “parcel” generally refers to the part being acquired, but it may also be used in association with original or remainder parcels. Partial Taking: Acquisition in which the original property is severed to form two parcels, leav- ing a “remainder.” Damages are most often associated with partial takings, which may require the removal of access, parking, buildings, or other improvements. Plans, Specifications and Estimates (PS&E): The documentation submitted by the project spon- sor that must receive state DOT approval before federal funds can be obligated to proceed with contract letting and project construction. Preliminary Engineering Phase: The project development phase that includes preparation of environmental and construction documentation, such as plans, specifications, and cost esti- mates. Preliminary right-of-way work, appraisal maps, and estimates may also be reimbursed with federal-aid funding for the preliminary engineering phase. Probability: The chance of an event occurring, measured as a percentage or fraction, where 100% or 1 represents certainty. Programming Estimate: The estimate for the selected alternative. This estimate can be based on some quantities. This estimated project cost begins with NEPA approval and continues up to the PS&E. Project: An undertaking to develop, implement, or construct a particular transportation enhancement at a specific location or locations. Project Schedule: The schedule, as presented by the project team, corresponding to the project team estimate. Project Team: The team representing the particular project under consideration. Range: The difference between the upper and lower values of a set of numbers or results, either absolutely or related to confidence levels. Range Cost Estimate: A cost estimate that shows a range of costs related to a specific confidence level. Rehabilitation: The act or process of returning a property to a state of utility through repair or alteration that makes possible an efficient contemporary use while preserving those portions C-3

or features of the property that are significant to the property’s historical, architectural, and cultural values. Restoration: The act or process of accurately recovering the form and details of a property and its setting as it appeared at a particular period of time by means of the removal of later work or by the replacement of missing earlier work. Right-of-Way (ROW): A linear corridor of land used for transportation or other facilities, such as highways, roads, streets, railroads, trails, light-rail, and utilities. Risk: The combination of the probability of an adverse event and its consequences. Risk Assessment: A systematic evaluation of possible risk events in order to quantify risk to the project. Risk Events: Potential adverse events that negatively affect the defined project (resulting in impacts to cost, schedule, safety, performance, or other characteristics), but do not include the minor variance inherent in normal costs. Examples include political and/or management changes, changes in regulations and laws, earthquakes, fires, floods, and unknown archeo- logical sites. Risk Team: The CEVP team members plus project team members who reviewed all elements of risk (including contingency) for the particular project under consideration. Selected Project: A project or project phase contained in an approved statewide transportation improvement program (STIP) that has been advanced for implementation by the state high- way agency in cooperation with the metropolitan planning organization or public trans- portation operator, as appropriate. Soft Match: The value of activities outside the project scope, but directly related to the project, that are credited toward the nonfederal share of a project. Sponsors: Individuals, partnerships, associations, private corporations, or public authorities rec- ommending a particular project and committed to its development, implementation, con- struction, maintenance, management, or financing. In most states, an enhancement project sponsor must be a public entity with tax-bearing authority. Surface Transportation: All elements of the intermodal transportation system, exclusive of avi- ation but inclusive of water. Variance (Variability): Inherent fluctuations due to random events that result in a range of potential values for a quantity. Whole Taking: An acquisition that involves the taking of the original parcel in its entirety. C-4